from the can't-get-too-popular dept

It's been pretty clear for a while that Uber, the super popular (if sometimes controversial) car-hailing service, has often courted regulatory conflict as a sort of marketing strategy. In cities around the globe, often the best way to get the public to realize that Uber was a convenient alternative to dreaded taxis was to have the local taxi commission/transportation board/whatever announce that whatever the company was doing was illegal. This would cue a blog post or email from the company, and thousands of (previously) happy but (now) annoyed Uber users to flood the government with complaints. Frequently, this would lead to the bureaucrats backing down quickly, and Uber getting a ton of "free" publicity. However, it appears that some places are simply ratcheting up the legal attacks on the company.

Last year, we noted that South Korea was threatening to put Uber CEO Travis Kalanick in jail for offering an "illegal" taxi service, and it appears that the country isn't backing down. Kalanick and dozens of others (not just from Uber) have now been
charged with operating an "illegal taxi ring" in South Korea. This round includes additional charges against Kalanick, who has wisely been staying out of South Korea for the time being, though the country plans to seek a warrant to have him arrested.

"We plan to summon Kalanick soon and check the transaction details of overseas bank accounts to conduct further investigation into those involved in the case," a police official said, speaking on condition of anonymity. "If Kalanick continues to disobey the summons, we plan to seek an arrest warrant against him."

French police raided Uber's office in Paris this week, as part of an investigation into its controversial UberPop service. According to French media reports, 25 officers raided Uber's headquarters for six hours on Monday, seizing emails, documents, and smartphones used by Uber drivers.

The company's low-cost UberPop service has been at the center of ongoing controversy in France, where authorities deemed it illegal under a new law that went into effect on January 1st. The law requires all chauffeurs to be licensed and insured — conditions that, according to French authorities, UberPop does not meet. Uber insists that the service is legal under French law, and has filed appeals with the European Commission. UberPop, which connects clients with non-professional drivers, remains available in France, though some 250 chauffeurs have been fined since the beginning of the year, according to FranceInfo.

Again, whether or not you approve of some of Uber's marketing practices (or its privacy or pricing policies), that shouldn't take away from the simple fact that it has actually created a tremendously useful service, enabling easier and often cheaper transportation for many people in a variety of urban areas. It's a powerful service, and it's difficult to see these recent legal attacks as anything more than blatant protectionism of existing taxi cartels that artificially keep prices high while providing generally sub-par service.

In denying the company's motion for summary judgment, Chen calls Uber out for the "narrow framing" of its "we're an app, not a company" assertions, but notes that Uber does grant its drivers enough leeway that the question cannot be completely resolved via a motion in his court. Chen also raises the spectre of further regulation -- something that's similarly unlikely to work out in Uber's favor.

The application of the traditional test of employment – a test which evolved under an economic model very different from the new “sharing economy” – to Uber’s business model creates significant challenges. Arguably, many of the factors in that test appear outmoded in this context. Other factors, which might arguably be reflective of the current economic realities (such as the proportion of revenues generated and shared by the respective parties, their relative bargaining power, and the range of alternatives available to each), are not expressly encompassed by the Borello test. It may be that the legislature or appellate courts may eventually refine or revise that test in the context of the new economy. It is conceivable that the legislature would enact rules particular to the new so-called “sharing economy.”

And then sends the case on its way to a jury trial, something he notes earlier is the only way to resolve an issue this complex. No precedent is set or will be set, at least not in Chen's court.

Until then, this Court is tasked with applying the traditional multifactor test of Borello and its progeny to the facts at hand. For the reasons stated above, apart from the preliminary finding that Uber drivers are presumptive employees, the Borello test does not yield an unambiguous result. The matter cannot on this record be decided as a matter of law. Uber’s motion for summary judgment is therefore denied.

This order disposes of Docket No. 211.

So, a case that has been running since August of 2013 may still be months away from a resolution. Uber's inability to get the suit tossed doesn't necessarily mean it's destined to become Yet Another Cab Company. It still has options, but it also has an uphill battle against plenty of incumbents… and the politicians who prefer what they know to unfamiliar market entrants.

from the this-won't-help-anyone dept

There are two big lawsuits that had hearings last week in California concerning how the car hailing (since some people get upset at the term "ride sharing") services Lyft and Uber operate. Both companies insist that what they provide is, in effect, a service marketplace, in which buyers (riders) and sellers (drivers) can connect (at preset prices) for rides. Under such a setup, the drivers have always been considered independent contractors who are using Lyft and Uber to find riders. Yet in both of these lawsuits drivers are trying to get themselves declared employees of the company, rather than independent contractors. So far, that argument seems to be winning as Judge Vincent Chhabria in the Lyft case on Thursday and Judge Edward Chen in the Uber case on Friday indicated that the drivers have a strong case.

In the press, many have focused on the emails that were revealed in the Uber case (which Uber sought to block, claiming they were trade secrets), in which Uber employees gleefully and profanely discuss banning bad drivers. The drivers argue that this shows that Uber had the ability to terminate their employment, making them more like employees. But that doesn't make much sense, and if true, it could present problems for all sorts of online services. Plenty of sites, from eBay to Yelp to Twitter all involve outside users making use of their platform -- where the companies have the right to terminate their use of the platform, but that doesn't make the users "employees."

The IRS Guidelines on the difference between an independent contractor and an employee, under my reading, seem to clearly indicate these drivers are independent contractors. They set their own hours. They provide their own equipment. They decide how to go about completing the job.

This case, in many ways, reminds me of similar attempts to have independent users declared employees. Not too long ago, some Yelp reviewers sought to be declared employees. And, back in 1999, a bunch of AOL volunteer chat room monitors sued to be declared employees of AOL. AOL eventually paid up to settle that lawsuit, but all of these kinds of cases threaten internet platforms like these. When users of those platforms can suddenly demand to be called employees -- with all of the related salary and benefits associated with such, it creates tremendous liability for these platforms, and makes the entire internet, and the various services it provides less useful.

The drivers in these cases are relying on a recent precedent of FedEx drivers being declared employees, rather than independent contractors, but in that case, it actually makes more sense. The drivers are wearing FedEx uniforms, and often driving FedEx provided vehicles -- and even there, the rulings in FedEx cases across the country have been mixed (and the cases are still going).

There certainly are companies that try to game the system to name people as contractors rather than employees, but in this case, rulings against Lyft and Uber (no matter what you think of those two companies and their business practices) could result in some serious challenges for a number of really useful services that use the internet to enable great services to the public. One hopes, at the very least, that should these rulings go the wrong way, that the federal government and various state governments will, at the very least, update their rules for employee v. contractor classifications to make sure these services can survive.

from the innovation-works-by-making-things-more-efficient dept

Each year, CEA (the Consumer Electronics Association) inducts a new group of inventors, engineers, business leaders, retailers and journalists to our Consumer Electronics Hall of Fame. And it's not lost on us that we celebrate innovation and disruption tonight in New York City, where New York State Attorney General Eric Schneiderman has fired the most recent shots against creative disruption and the sharing economy in his ongoing attack against Airbnb.

The term "sharing economy" refers to platforms that make it easy for anyone to become an entrepreneur by offering up an unused resource for sale or rent, be it an empty bedroom, a parked car or a skill. While still a fledgling industry, the sharing economy will have a substantial impact on our nation's overall economic success -- enhancing competition and consumer choice, lowering barriers to entrepreneurship and boosting consumption overall -- but that depends on regulatory atmospheres at the federal and local levels that promote, rather than stifle, innovation and entrepreneurship.

More Choices, Greater Efficiency

The sharing economy includes new platforms for existing providers of different goods and services (like transportation, lodging or cleaning) that let consumers compare prices and features before they buy. For example, some people may choose not to purchase a vehicle because they find their needs are met through ridesharing, while others who might decide to buy a new car using their supplementary income from ridesharing. There are also platforms for selling unique items (Etsy) or offering specific, freelance labor services (oDesk, TaskRabbit) – production and exchange opportunities not previously available to consumers.

Lowering Barriers to Entry

Suppliers in the sharing economy –- sometimes referred to as "micropreneurs" -- have backgrounds as varied as the goods and services available. Peer-to-peer businesses allow for flexibility in hours and payment for skills or basic services that may not constitute full-time employment. More, these jobs eventually may act as "on ramps" to full-time, sole proprietorships or other entrepreneurial activities.

Growing the Pie

The peer-to-peer businesses enabled by these new platforms can draw on underused human capital: People supplement their full-time jobs with extra work as Airbnb hosts or Lyft drivers, for example, or professional providers can find additional work via platforms like Uber and Kitchit. Technological change that generates more output from the same capital, or that facilitates a more efficient use of labor, increases productivity. This kind of productivity-enhancing, technological change typically contributes to long-term economic growth -- a "bigger pie" -- that can often boost other industries as well.

The 2014 Consumer Electronics Hall of Fame induction celebrates the promotion of technology, the delivery of consumer products in new, exciting and profitable ways, and the importance of ensuring that innovation and entrepreneurship can thrive. But when this innovation threatens legacy businesses such as broadcasters, hotels, or taxis, these entrenched industries use their heft to influence regulation and enforcement to block competition. CEA stands with Airbnb and the countless other disruptive innovators that fuel the sharing economy and, in turn, drive our greater economic growth.

from the can't-beat-'em-in-the-market,-so... dept

There's nothing like a bit of disruptive innovation to make the legacy players start busting out the old moral panics. We've written a few times about the new generation of ride-for-hire and ride-share services, which are really disrupting the old taxi and limo business -- leading to all sorts of highly questionable lawsuits and attempts at regulating these new players into oblivion. In almost every case, it seems quite clear that these attacks are not because the service is bad for consumers... but because it's disrupting traditional players who haven't innovated. So, it came as little surprise this week to receive an email from the "Taxi, Limousine & Paratransit Association" excitedly telling me all about a new paper they've issued with a giant "warning" about what they call "rogue apps." Isn't that great? Rather than innovative and disruptive services that consumers absolutely love, they just rebrand them as "rogue" apps and they can make them seem sssssssssssssscary. The paper grades various new services, giving them a "red light," "yellow light" or "green light."

Not surprisingly, the more well known apps -- Uber, SideCar, Lyft and Tickengo -- all have received the coveted "red light." While according to the TLPA this means they're dangerous "rogue apps," to me it suggests that they're all doing something right. They're providing services that people want that are more convenient or better priced than the old guard, which is why the old guard has to attack them.

The key point they make is that these are all "unregulated" taxi services, which allows them to go into full out moral panic mode about how, without regulations, these services will likely take advantage of consumers. The paper talks about threats of "criminal" drivers and the potential for meter rigging. Of course, as we've seen in other industries, this seems like a clear case of businesses using regulations to keep out innovation and competitors, rather than for a legitimate purpose. Yes, many of those regulations were put in place for a good reason originally, yet many of those reasons really don't apply to these new services.

In the past, you needed regulations to protect you from drivers taking extra long paths to where you wanted to go, driving poorly or charging too much -- because drivers could do that and there was little recourse. But the thing about these new services, which rely heavily on online reputation systems, is that these reputation systems make the need for such regulations much less necessary. The services, like Uber, set the price and poor drivers get booted from the system based on user reviews. And, since most people who have a mobile phone these days to use one of these apps will also have GPS on those phones, people can self-monitor if the driver is taking a reasonable route. Basically, the original safety reasons (which, again, may have made sense at the time) for many of those regulations simply may not really apply to these new services. But rather than deal with that, the legacy players are doing what legacy players do: using those regulations to try to stomp out innovation and stifle competition.

from the just-innovate dept

We've written a bunch about the disruptively innovative transportation company Uber, which has been running into regulatory issues with multiple local regulators. Andy Kessler recently had a fantastic interview with Travis Kalanick, Uber's CEO, concerning the regulatory battles he keeps running into. If you've followed Uber over time, very little in the interview will be surprising. It tells of Kalanick's past -- he was sued for $250 billion at one point for running Scour.com, an early file sharing site -- but also of his belief that these regulations are protectionism for legacy industries.

One bit that struck me however, was his response to Kessler posing an expected question concerning Uber's penchant for launching first and dealing with the regulatory fallout later (well, and reaping the publicity rewards of complaining about being stifled by regulations):

When I suggest to Mr. Kalanick that Uber, in the fine startup tradition, was using the "don't ask for permission, beg for forgiveness" approach, he interrupts the question halfway through. "We don't have to beg for forgiveness because we are legal," he says. "But there's been so much corruption and so much cronyism in the taxi industry and so much regulatory capture that if you ask for permission upfront for something that's already legal, you'll never get it. There's no upside to them."

I think this is actually pretty important. There's been plenty of talk about the importance of permissionless innovation and permissionless creativity. That is very important. But, somehow, we rarely talk about the flipside, which is that those engaged in creating wonderful and innovative things also should be proud of what they're doing, rather than feeling like they need to ask forgiveness for upsetting the apple cart. Disruption is a messy business, but in the end it creates tremendous benefits for nearly everyone (except those who relied on the old way, and refused to change). It's great to see a company like Uber leading the way.

from the regulation-2.0 dept

Here we go again. Yet another local transportation regulator who either doesn't understand Uber or (perhaps more likely) understands it all too well has decided to give Uber all the free Streisand Effect publicity it needs to build its reputation in the market by trying to pass legislation to shut it down. This time it's the Colorado Public Utilities Commission, which is looking to pass some new regulations that effectively make it impossible for Uber to operate its innovative car/taxi service (which is incredibly popular with users) in Denver. Of course, all this has really done is give Uber the perfect opportunity to get tons of attention for its service in Denver as it urges Uber fans to speak out against the regulatory changes.

Uber points out that the proposed changes will basically make its business model illegal in multiple ways -- saying that you can't price based on distance, effectively keeping Uber cars outside of downtown areas that taxis populate, and forbidding Uber's key relationship set up with drivers (independent partners). As Uber points out, these rules don't serve any legitimate regulatory purpose other than to prop up the taxi business model and hurt the disruptive upstart:

These rules are not designed to promote safety, nor improve quality of service. They are intended to stop innovation, protect incumbents, hurt independent drivers, and shut down Uber in Denver.

Of course, we've seen this before. In a bunch of places where Uber operates, the service faces regulatory crackdown by local regulators who seem to do a lot more to protect incumbent taxi services than they do to figure out what benefits the users the most. This gets back to that concept of corruption laundering that I've mentioned a few times. The regulations can be presented as having good intentions: they want to protect riders from getting scammed by unscrupulous drivers, and they want to make sure the market is safe and efficient. But, as with so many regulatory schemes, what can be positioned as having the best of intentions also serves a secondary purpose: to allow incumbents the ability to thrive, while blocking out competition and the impact of disruptive innovation. That seems to be the case here yet again.

from the innovation-not-allowed dept

We've covered the various regulatory and legal fights that Uber has been dealing with lately. The company, which basically has set up a super convenient way for people to book a ride (and, in some cases, taxis), keeps running up against a combination of local regulatory agencies who tend to feel that they get to lord over anyone who attempts to do anything involving driving people around for money, as well as existing limo and taxi providers who fear a more efficient system (especially when they profit off of inefficiencies). Of course, some politicians and taxi/limo drivers recognize that greater efficiency is actually good for everyone, allowing a more convenient and useful system, and filling in gaps when regulated supply strains the system.

However, too many are just focused on the status quo. And this isn't to say that there isn't a place for regulatory bodies to ensure that cabs and limos are safe and that they don't take advantage of passengers. But the line between protecting passengers and protecting legacy players from competition sure does become a blurry line very, very quickly. And this week a bunch of these companies have run into legal problems on their home turf. Uber, specifically, has has been sued in San Francisco by some cabbies demanding that the company be shut down. They claim that Uber's car hailing service is really an unregulated taxi service, and thus, unfairly competing with them.

Perhaps the bigger issue, however, is that the California Public Utilities Commission (PUC) has fined Uber and two other companies, Lyft and SideCar (who offer ridesharing). As that Wired link notes, this seems to be a clash between two core concepts that seem to thrive in San Francisco: on the one hand, freedom to innovate and disrupt and, on the other hand, support in government intervention for the public good. I'd argue that the two concepts aren't in quite as much conflict as the article suggests, if the intervention actually is for the public good. The problem is that's not really clear here, and it's not hard to see how it's really for the sake of limiting competition.

SideCar points out that this is a case of regulators not knowing how to classify an innovation:

asserting that we are operating a transportation carrier... is like saying Airbnb is a hotel chain, that Travelocity is an airline, or that eBay is a store

Lyft, similarly, suggests that there's a problem in regulators taking a square peg and trying to shove it into a round hole, because they've never seen a square before:

Transportation has historically been a highly regulated industry, and the existing regulations weren’t designed to imagine a world where two neighbors who have never met are able to connect within a matter of minutes to share a ride across town.

Uber's CEO, Travis Kalanick, told Wired that the PUC fine is particularly ridiculous in its case, since it only works with drivers who are already regulated by the PUC. It's just offering them another channel for finding customers. But under the PUC's ruling, it appears that they want those people to be doubly regulated, which seems completely wasteful:

Our contention is that if you read the regulations, such a notion doesn’t make sense. Are we supposed to give drivers a second drug and alcohol test? Are we supposed to have cars inspected by the DMV a second time after they’ve already inspected (our) partners’ vehicles?

In the end, you have to wonder if the role that regulators have still makes sense for these kinds of innovators. Yes, there are issues about safety and avoiding scams, but the various companies have built in systems to deal with that -- such as driver ratings and public reviews. Those types of things weren't really possible in the past, which is why you needed a PUC to make sure taxidrivers weren't ripping people off. But now the "PUC" can be the public itself. But... that only works if you believe the regulations are supposed to help the public, rather than the legacy players.

from the how-dare-they! dept

We've written about innovative car service company Uber a few times before, though mostly for its bizarre run-ins with local regulators, who often seem to think their job is to protect local taxi companies from innovative competition. Uber, for what it's worth, has used many of these attacks as marketing vehicles to get more attention to their service, and the local regulatory agencies almost always seem to back down. Of course, most people recognize that these agencies are often just doing the bidding of local cab companies. In Chicago, it appears that the cab companies have taken matters into their own hands and have sued Uber directly.

You really have to read the full complaint below, as it is a classic case of an industry being disrupted and lashing out at the disruptive player, repeatedly screaming "but you can't do that!" out of sheer jealousy and spite. It really is just a litany of claims about why they just don't like Uber. First, they whine that Uber "misleads" customers by comparing itself to taxi and livery services, even though it's somewhat innovative system is to actually empower independent drivers. But that's not actually hidden. And, um, I'm not sure why the taxi companies have any standing to complain about that.

Next, it argues that Uber charges too much, and adds a 20% gratuity. Again, all of this is clearly laid out to users of Uber's service. If they're willing to pay what Uber's rates are, then what's the problem? And again, if anyone has standing on that, it would be the users, not the cab companies -- and we'll discuss the fact that some users are suing too in a moment. There are a number of other complaints will all just seem like sour grapes.

My favorite part, though, is the claim that Uber "illegally discriminates against people without credit cards and smartphones." Did you know there was such a thing?

While Uber advertises itself as “Everyone’s Private Driver”—that is in fact a
gross mischaracterization as Uber only chooses to cater to what it perceives as the
technologically elite and well-off individuals. It is obvious that through Uber’s marketing it
caters to young, hip, urban professionals, which is perfectly reasonable on the livery side. But
using the publicly regulated (and limited number) taxis in order to create a two tier system—
“high quality taxis” for the “haves” and the remainder for the “have nots”—runs contrary to the
many ordinances enacted in Chicago to ensure non-discriminatory service for everyone in
Chicago, not just those “cool” enough to use Uber.

The one area that does seem a little iffy on Uber's part is that it signs up cab drivers who work for some of these companies that are suing -- and Uber's website (in at least one place) seems to imply that it has "partnered" with different cab companies, when the reality is that it lets the drivers sign up themselves. I could see where the cab companies may have a legitimate beef if their brands are falsely implied to be associated with Uber's.

That said, all of this just really seems like jealous taxi companies. Uber offers a useful service for those who want it. It's actually somewhat expensive -- and that's why plenty of people I know don't use it. But if you're willing to pay for the convenience, many, many customers seem to like it. It really is quite convenient. Either way, most of these complaints seem like the ones that either consumers should be making... or that local regulators should be making. I don't see how the taxi companies have any standing on most of the issues -- with the one about the implied "partnerships" being a possible exception.

Of course, on that point about users having standing... in an amazing coincidence... some Uber users have also picked the same week to file a class action lawsuit against Uber in Chicago, claiming that its charges are "deceptive." Of course, the actual fees are not, in fact, deceptive. They're very clearly laid out on Uber's site. So, instead, the lawsuit claims that the deceptive bit is that they add a 20% gratuity (again, clearly disclosed on the site) but that the driver only gets half of that gratuity.

They're arguing that this is really charging higher metered rates. But given that what the user pays is all completely disclosed, I'm still at a loss as to what the problem is. The user isn't deceived about the rates they pay. They're quite clear. Given the timing of the two lawsuits, it certainly feels like the cab companies may have helped "set up" users to complain.

In the end, the whole thing is unfortunate, and yet another sign of legacy industries unwilling to compete in the market. Uber offers a decent product. The price is high, and some people are willing to pay that price. If cab companies competed effectively (and they already have the price advantage), then there wouldn't be a problem. But, Uber's discovered that people like to pay for convenience and these cab companies apparently aren't well set up to deal with that. Rather than adapt, they're suing.

from the uber-onward dept

Well, that was fast. It seems that Uber, the innovative new transportation offering, keeps running into local regulatory problems... but as soon as the public gets wind of these, the local governments back down. Last month, it was DC backing down on a bill that would artificially inflate Uber's prices. And now, it's Massachusetts. Yesterday, we noted that the Luddite Council "Sealer of Weights & Measures" had ruled that Uber had to shut down in Boston and Cambridge because of these newfangled "GPS" things (and it didn't even know what GPS stood for).

And... just like that, the "Division of Standards" has issued a "modified hearing decision" on the matter, in which it realizes that perhaps GPS isn't such a crazy, awful, dangerous technology after all. Apparently after re-examining "relevant amendments to Handbook 44 by NIST and NCWM" (National Institute of Standards & Technology and the National Conference on Weights and Measures), they've decided that Uber can continue to operate, granted "provisional" approval, which is "pending the outcome of the NIST study and/or the establishment of any standards for the use of such systems."

In other words, crisis averted for now, but wouldn't it be better for local regulatory agencies to think these things through a bit more in the future rather than defaulting to banning any new and innovative offerings?